R&D Tax Incentive – Future Core Activities

Unsure how to navigate your R&D

tax incentive claims for future core activities? 

Call 1300 658 508 

Overview

Did you know that you do not need to undertake a core activity during the claimed year in order to be eligible for the R&D Tax Incentive! You only need to plan to undertake one!

Introducing the Future Core Activity

Yes, you read that right! If your company intends to conduct core R&D activities in the future, this can be taken into account during your registration process for the R&D Tax Incentive and make the current R&D eligible.

The legislation confirms this with the phrase:

To register eligible R&D activities, you need to conduct or plan to conduct at least one core R&D activity.

So what is a core activity?

Before delving in the the future, it’s essential to define what constitutes a core R&D activity.

A core R&D activity is an experimental activity:

• Outcome – Whose outcome cannot be known or determined in advance on the basis of current knowledge, information, or experience.
• New Knowledge – That is conducted for the purpose of generating new knowledge (this could include new knowledge in the form of new or improved materials, products, devices, processes, or services).

No core activity this year?

It’s a common misconception that you must have a current core R&D activity to be eligible for R&D tax incentives.

AusIndustry’s guidelines offer flexibility, allowing for the inclusion of future-planned core activities.There’s no strict requirement for the core R&D activity to be conducted within the current financial year.

Planning for a core R&D activity in a future year is acceptable.

What helps with claiming a future core activity?

Understanding the role of future core R&D activities is crucial for maximising your R&D tax incentive claim. While AusIndustry values activities conducted in the current financial year, they also give importance to your future plans.

To enhance your current claim:

• Document Future Core Activities – Clearly outline your plans for future core R&D activities, showing their potential for scientific or technological breakthroughs.
• Current Supporting Activities are Vital – Continuously engage in and document current supporting R&D activities, as they lay the groundwork for your future core projects.

This strategic approach ensures you’re fully prepared to capitalise on future R&D opportunities while optimising the benefits from current activities.

Claiming the Wrong Things?

Mistakes can be a one-way ticket to an audit.

Send us a message now 

Worked Example: Black Box Flight Recorder

Setting the Scene
Imagine a company, AeroTech Innovations, dedicated to advancing aviation safety technology. They are at the brink of developing a new black box flight recorder that promises enhanced data retrieval capabilities and superior durability under extreme conditions.
However, they haven’t yet commenced their core R&D activities; they are in the crucial planning and feasibility stage.

Pre-Core Activity Phase
At this juncture, AeroTech is deeply engaged in preparatory activities. They conduct extensive market research to understand the specific needs within the aviation industry and the technological shortcomings of existing black box recorders.
This research is essential to ensure that their future product will meet the industry’s demands and represent a significant technological advancement.

Parallel to the market research, AeroTech is also involved in preliminary technological studies. They are exploring various materials and data storage technologies that could potentially make their black box recorder more resilient and reliable in extreme conditions, like high-impact crashes or deep-sea submersions.

This phase involves consultations with material scientists and data storage experts, along with a series of theoretical models and simulations to predict the performance of various materials and technologies under extreme conditions.

Strategic Documentation for Future Core Activity
Throughout this pre-core activity phase, AeroTech meticulously documents every research finding, expert consultation, and theoretical model. They understand that while these activities are not the core R&D activities per se, they are integral to laying the groundwork for the future core project.

This documentation will not only guide their subsequent R&D efforts but also serves as crucial evidence for R&D tax incentive claims, demonstrating their commitment to developing a future core R&D activity that holds the potential for significant scientific and technological advancements.

Need clarity on documenting

your future core R&D activities? 

Message Bulletpoint for tailored guidance.

Want Tailored Advice?

Navigating the complexities of R&D tax incentives, especially around future core activities, can be daunting. That’s where Bulletpoint, with our wealth of experience and proven track record, becomes your ideal partner in this journey.

• A Decade of Expertise – With over 10 years of experience in the field, Bulletpoint stands as a beacon of knowledge and proficiency in R&D tax incentives.
• Over 500 Successful Lodgements – Our history includes more than 500 successful R&D tax incentive lodgements, highlighting our capability and consistency.
• Unparalleled Success in Reviews and Audits – We have successfully defended claims during both ATO and AusIndustry reviews and audits, showcasing our thorough understanding and compliance expertise.
• Highest-rated R&D Tax Consultant – Don’t just take our word for it; our average rating of 4.8 stars from over 250 Google reviews speaks volumes about our client satisfaction and expertise. Check out our Google reviews to see what our clients say about us.

We understand the intricacies and challenges that businesses face when dealing with R&D tax incentives and future core activities. At Bulletpoint, we pride ourselves on our ability to cut through the jargon and provide clear, expert guidance.

Take the Next Step: Whether you’re looking to maximise your R&D tax incentive claims, need assistance with documentation, or want expert advice on navigating the R&D landscape, we’re here to help.

Don’t leave your R&D tax incentives to chance.

• Call Us: For immediate assistance, call us on 1300 658 508 and talk to our experts directly.
• Send a Message: Have specific queries? Send us a message, and we’ll get back to you with tailored solutions.
• Book a Meeting: Ready to dive deeper? Book a meeting right now to discuss your R&D tax incentive strategy.

At Bulletpoint, we’re committed to guiding you through the R&D tax incentive process with professionalism, ensuring your experience with us is not just successful, but also insightful.

Things you need to do to be eligible

In order to claim a future core activity, follow these steps:

1. Thorough Documentation – Ensure detailed records of your plans for future core activities, including project objectives, methodologies, and expected outcomes.
2. Alignment with R&D Definitions – Your future core activities must align with the legislative definition of R&D – involving innovation, scientific research, and technological advancement.
3. Clear Timeline – Outline a clear timeline for your future core activities, demonstrating a realistic and structured approach to their execution.
4. Technological Uncertainty – Establish and document the technological uncertainties your future core activities aim to resolve, which is a key criterion for eligibility.
5. Continuity and Connection – Show a clear connection between your current activities (if any) and your future core projects, emphasising continuity in R&D efforts.
6. Compliance with Regulations – Ensure that your planned future core activities comply with all relevant Australian laws and regulations, including environmental and safety standards.
7. Budget and Resource Planning – Provide a detailed budget and resource plan for your future core activities, demonstrating sound financial planning and resource allocation.
8. Expertise and Capability – Outline the expertise and capabilities, including human resources and technology, that will be utilised to carry out these future core activities.
9. Innovation and Advancement – Emphasise how the future core activities will lead to innovation or significant advancement in your field, which is a cornerstone of R&D eligibility.
10. Record of Experimental Activities – Keep a record of experimental activities and trials that will be part of the future core activities, including hypotheses, testing methods, and analysis of results.

Red Flags

When submitting R&D tax incentive claims, especially for future core activities, it’s crucial to be aware of certain red flags that might draw AusIndustry’s attention for a review or audit. Being cognisant of these can help you prepare a more robust and compliant claim.

1. Vague or Generic Project Descriptions – AusIndustry looks for specific and detailed descriptions of R&D activities. Vague or overly broad project outlines can raise questions about the legitimacy and precision of your R&D claims.
2. Lack of Technological Uncertainty – A key aspect of qualifying R&D activities is the presence of technological uncertainty. Claims that don’t clearly articulate these uncertainties or how the activities seek to resolve them can be a red flag.
3. Disproportionate Expenditure – Excessive costs claimed in relation to the size of your business or the scope of the project can trigger scrutiny. Ensure your claimed expenses are reasonable and proportionate to the R&D activities.
4. Inconsistencies in Documentation – Any inconsistencies between your R&D registration, technical descriptions, and financial records can raise doubts. Consistency and accuracy in all documentation are imperative.
5. Claims for Non-R&D Activities – AusIndustry is vigilant about claims that include activities not qualifying as R&D under the legal definition. Including such activities can be a significant red flag.
6. Lack of Continuity in R&D Efforts – If your business has a pattern of claiming for isolated R&D activities with little continuity or progression from year to year, it may signal a lack of genuine ongoing R&D effort.
7. Over-claiming Staff Costs – Claiming a high proportion of staff costs, especially if they are not directly related to R&D activities, can be a cause for concern. Ensure staff costs are directly and clearly linked to your R&D activities.
8. Inadequate Record Keeping – Failing to keep detailed and contemporaneous records of your R&D activities, including experimental designs, results, and conclusions, can result in increased scrutiny.

To avoid these red flags and ensure a smooth assessment process, it’s advisable to seek expert guidance.

At Bulletpoint, we specialise in assisting businesses with their R&D tax incentive claims, ensuring every aspect of your claim is compliant and well-prepared for any potential review or audit by AusIndustry.

So You’re Being Audited for a Future Core Activity… Now What?

If AusIndustry is asking questions about your future core R&D activity, they’re checking whether your claim actually fits the definition of eligible R&D. They want to know that you’re not just assuming something is uncertain, but that you’ve got solid reasoning and evidence to back it up.

Here’s what they’ll ask and how you should respond:

1. What were the specific technical issues you needed to resolve? – Be clear about the actual technical problem. Explain why it couldn’t be solved using existing knowledge and what made it complex or uncertain. Just saying “we didn’t know if it would work” isn’t enough—you need to show real technical uncertainty.

2. How did you plan experiments to test your hypotheses? – Even for a future core activity, you need to have a structured hypothesis. Outline how you planned to test different solutions, what methods you used, and how you determined whether something was successful or not.

3. How did you establish that the outcome could only be determined through a systematic progression of work? – They want to see that your R&D wasn’t just a series of random trials. Your work should follow a logical sequence, where each step builds on the last, rather than just experimenting with different approaches without structure.

4. Which experts did you consult, and how did their knowledge shape your activity? – If you spoke with industry experts, academics, or specialists, explain who they were and how their knowledge contributed to designing your activity. If an expert told you upfront that the problem had an obvious solution, that’s a red flag—AusIndustry wants to see that your challenge wasn’t something that could be easily solved with existing expertise.

5. Could these experts predict the outcome of your proposed solution before it was trialled? – If an expert could confidently say, “this will work,” then it’s probably not eligible R&D. The outcome should be unknown, even to specialists in the field. That’s what makes it an eligible R&D activity rather than just routine development.

6. Did you keep records of these conversations?  – AusIndustry will want proof that these discussions happened. If you had meetings, emails, reports, or notes from conversations, make sure they are documented. Having no records makes it much harder to justify your claim.

7. What literature did you review before starting? – You need to show that you researched existing solutions before starting your R&D. This could be research papers, technical manuals, competitor products, or industry reports. If you didn’t check what’s already out there, it suggests you might have been solving a problem that wasn’t actually uncertain to begin with.

8. What evidence do you have that supporting R&D activities are directly related to the core activity? – If you’re claiming supporting R&D activities, you need proof that they were necessary for your core R&D. This could include contracts, emails, technical reports, or timesheets showing how they directly contributed. If the connection isn’t clear, those costs may not be eligible.

Are you ready for a full audit?

Right now, you’re on the cusp of a full audit, which means the next steps are crucial. A delayed or incomplete response could push AusIndustry to escalate their review, and that’s where things get complicated. Once you’re in a full audit, they’ll go through your entire R&D claim with a fine-tooth comb, and if they’re not satisfied, you could be looking at a denied claim, clawbacks, penalties, or even future restrictions on claiming R&D.

We’ve been through this process many times and know exactly how AusIndustry assesses these claims. They are looking for clear, detailed, and well-documented evidence that your R&D meets the eligibility criteria. A vague or rushed response increases the risk of further scrutiny, and once you’re in that situation, it can be difficult to get out.

This is where we come in. At Bulletpoint, we specialise in helping companies respond effectively to AusIndustry reviews and audits. We know what they’re looking for, what kinds of records will strengthen your case, and how to position your response to minimise risk. Our experience means we can identify potential weaknesses in your claim before they do and help you address them before submitting your response.

Time is critical. The sooner we go through your documentation, the better prepared you’ll be. If you wait too long, you’ll be scrambling to pull everything together at the last minute—and that’s when mistakes happen.

Don’t take the risk of going it alone. Book a time with us now so we can help you get your response right the first time.

Book a meeting here ($295)

How to Respond to AusIndustry and Structure Your Reply

When responding to AusIndustry’s questions, detail and clarity are key. A weak or vague response will only lead to more scrutiny, more questions, and possibly a full audit. You need to clearly demonstrate that your activity meets the definition of R&D by addressing each question in a structured, evidence-based manner.

Here’s how to structure your response effectively:

1. Start with a Clear Introduction

Begin by summarising your response and confirming your understanding of their request. State that you are providing evidence that your registered R&D activities meet the legislative requirements. This sets the tone and shows you are approaching the request professionally and thoroughly.

Example:
“We understand that AusIndustry is seeking further clarification on the eligibility of our registered core and supporting R&D activities. The following response outlines the technical uncertainty, systematic progression of work, and supporting documentation demonstrating that these activities meet the criteria outlined in the R&D Tax Incentive legislation.”

2. Address Each Question Separately

AusIndustry typically asks multiple questions in their review request. Do not lump responses together—address each one individually, using headings or numbering to make it easy for them to follow.

For each question:

• Restate the question to ensure clarity.
• Provide a direct, detailed response—avoid vague or generic statements.
• Back it up with evidence—this could include reports, emails, technical documents, meeting notes, and research references.

3. Provide Evidence for Technical Uncertainty

One of the biggest red flags for AusIndustry is when a company fails to show why the outcome of the activity was uncertain. Your response should clearly demonstrate:

• What the technical challenge was—explain why existing solutions or knowledge could not be applied.
• Why the outcome wasn’t known upfront—even to an expert in the field.
• How you went about resolving it—step-by-step details of your experimentation or development process.

Example:
“The development of our AI-powered automation system presented a key technical challenge: existing algorithms could not accurately predict fluctuations in production line output due to high variability in input materials. Despite an extensive literature review and discussions with data science experts, no existing solution could be directly applied. As a result, our team conducted multiple iterations of machine learning model development, refining training data and testing different neural network architectures through a structured experimentation process.”

4. Show That You Followed a Systematic Process

AusIndustry wants to see that your R&D followed a logical, structured process, not just trial and error. Clearly lay out the steps taken, referring to any hypotheses, testing procedures, or iterative improvements you made along the way.

A strong way to present this is using a timeline or numbered steps:

1. Conducted a literature review to determine if existing models could be applied.
2. Consulted with data science experts to assess feasibility.
3. Developed an initial prototype and tested it under controlled conditions.
4. Analysed results, identified limitations, and iterated on the model.
5. Conducted further trials and refined the final solution.

Where possible, attach supporting documents—test reports, emails from experts, development logs, and internal technical reviews all help to reinforce your claims.

5. Link Supporting R&D Activities to Core R&D

If you’ve also registered supporting R&D activities, you need to prove they were essential to the core R&D. AusIndustry doesn’t want to see general operational work being claimed as R&D. Make the connection clear by explicitly explaining how each supporting activity directly contributed to solving the core technical problem.

Example:
“Our supporting R&D activity ‘Development of Custom Testing Environment’ was directly linked to the core R&D activity ‘Optimisation of AI Model for Production Line Efficiency.’ This environment was necessary to conduct real-world simulations and validate model accuracy. Without it, we would not have been able to systematically test different neural network configurations under production conditions.”

Attach relevant documentation such as internal emails, meeting minutes, and technical specifications to show why this work was integral to the R&D.

6. Conclude with a Strong Closing Statement

End your response by reinforcing the eligibility of your R&D activities and summarising the key points. Express your willingness to provide further clarification if needed.

Example:
“Based on the information provided, we confirm that our registered core and supporting R&D activities meet the eligibility criteria of the R&D Tax Incentive program. The activities involved genuine technical uncertainty, a systematic progression of work, and rigorous experimentation. Please let us know if any further clarification is required.”

Need Help? Book a Meeting Now

A poorly structured or underprepared response can escalate the review into a full audit. At Bulletpoint, we’ve helped countless companies navigate R&D reviews successfully. We know what AusIndustry is looking for and how to frame your response to avoid unnecessary pushback.

Don’t risk going it alone—book a meeting with us now, and we’ll go through your case, refine your response, and ensure you put forward the strongest possible argument.

P.S – If you have read this far you, there is a 80% chance that your future core activity is about to be deemed ineligible. Who ever wrote your R&D application will likely not know how to respond hence why you are searching this blog.